Indirect Tax Implications on Crypto Exchanges in India
The applicable laws with respect to GST are the Central Goods and Services Tax Act, 2017, the Integrated Goods and Services Tax Act, 2017 and the respective State Goods and Services Tax Acts, with each having different jurisdictional ambit.
GST is payable on:
- sales of goods where goods are sold within one state in India;
- sales of goods where goods are transported from one state to another state;
- the provision of services within a state in India; and
- the provision of services from one state to another state in India.
For dealing with the aspect of Current account transaction, it is necessary to understand the nature of CryptoCurrencies or Virtual Currencies, i.e., whether these will fall into the category of a Good (product). Under Section 2 (7) of the Sale Of Goods Act, 1930 the term “goods” has been defined to mean every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
In Tata Consultancy Services v. State of Andhra Pradesh[1], the Supreme Court of India held that the term goods as used in the Constitution of India and under the relevant Act is ‘very wide and includes all types of movable properties, whether those properties be tangible or intangible.’ The Court also iterated ‘…the term ‘all materials, articles and commodities’ includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc.’
The Tariff Schedule for GST Rates Tariffs for Goods does not explicitly contain the ‘crytocurrency’ item but it does contain a residuary clause ‘Goods which are not specified in Schedule I, II, IV, V or VI.’(18%) [2] Hence, the cryptocurrencies will fall under the ambit of ‘Goods’ and hence these cryptocurrencies transactions would be charged GST if the transactions are done in the furtherance of a business. The people selling these cryptocurrencies in the course of furtherance of their business and requiring the GST (registration) number, based on the annual revenue threshold, would have to include GST in their transactions. It is also pertinent to note that the different cryptocurrencies would be treated differently. The exchange would not be liable for any GST liability if the exchange is working only as a guarantee or intermediary.
GST must be paid by the service providers on the amount of services that they provide. In essence, a cryptocurrency exchange must charge 18% GST to it’s customers based on the commission that the exchange charges because it would come under the ambit of ‘services’. It is also pertinent to note that a person would not be liable under any GST consequence if he/ she is not transacting in cryptocurrencies in course of their business. People would also not be liable under GST regime if they start selling their cryptocurrencies which were held by them as investment(s).
Note: If the transaction is in cryptocurrencies, and the commission is in percentage of the transaction money, or the cryptocurrency to cryptocurrency model, the taxation liabilities would be determined on the price of cryptocurrencies when the transaction took place.
Also, note: There is no definitive stand of the government under these laws and this is based on our interpretation of indirect and direct taxation laws.
BY
Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email id: vpdalmia@gmail.com
Mobile No.: +91 9810081079
Linkedin: https://www.linkedin.com/in/vpdalmia/
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Twitter: @vpdalmia
AND
Siddharth Dalmia
dalmiasiddharth1994@gmail.com
Mobile: +91 997179925
[1] Appeal (civil) 2582 of 1998 in Supreme Court of India
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